Market looks to Brexit negotiations, US fears second coronavirus wave

Market Recap

Global equity market

(Source: https://markets.businessinside...)

Crude oil

Last week:As a result of disruption caused by Hurricane Delta, most of the oil fields across Mexico paused production last week, while OPEC revealed it did not hold positive expectations regarding next year’s oil demand levels. As a result, the price of oil climbed on Monday and Tuesday1.

Later in the week, most fundamentals indicated a drop in oil demand was imminent – with the notable exception of US Energy Information Administration(EIA) and API reports, which both suggested there was increasing demand for oil. Nonetheless, OPEC’s main plan for next year involves cutting supplies.2

This week: OPEC will hold a meeting later today for both OPEC and non-OPEC oil producing nations.API and EIA data both indicate a strong recovery is underway for the US economy^{3 4},which is a different conclusion than suggested by the recent employment figures;accordingly, the API data may have a short-term influence on the markets.

Meanwhile, Brentand WTI oil prices are expected to reach above $40 and $42 per barrel,respectively, by the end of this week.

Gold

Last week:Gold climbed back after the US employment data released and the EU-UK negotiations paused temporarily. However, the precious metal is no longer the leading force on the market and the gold price subsequently began reconsolidating downwards.

This week:Judging by the economic calendar, there are few potential risk events in the week ahead. The chance of a second Scottish independence referendum remains an issue for the UK, regardless of any Brexit agreement that could be reached5.

Additionally, traders should be aware that the recent World Gold Council report has had no noticeable direct link on the price of gold.

United States

Last week:The entire US equity market performed well after President Trump left hospital following his admittance with coronavirus. However, the unexpectedly glum employment data had a negative impact on the market.

The USDX also began climbing back due to the comparative weakness of both the euro and the pound. Additionally, despite the strong performance of the equity market, there seemed to be less overseas capital investment on the US market than expected last week.

This week:There will be several Federal Reserve speeches to look out for this week. If the $3.1trn government deficit is mentioned, speculators should be prepared for fluctuations in the market. On the other hand, a potential agreement between President Trump and the Speaker of the House Nancy Pelosi could inspire investors’ confidence if such a deal is announced.

Meanwhile, neither Thursday’s employment data or Friday’s PMI release are slated to be optimistic news, and the final Presidential debate on Thursday evening could cause a shift in the markets depending on the respective candidates’ performances.

Lastly, there is the continuing spread of COVID-19 to consider – new cases are reportedly up to 69,276,marking a near-high since July.

Europe

Last week:Due to unsolvable disagreements on fishing rights and support for international cooperation, there was no further progress on securing an EU-UK Brexit agreement, and UK PM Boris Johnson’s previously deadline of 15^th October has been scrapped as talks continue.

As a result, both the GBP and EUR kept dropping last week, while the European Capital market was also weak.

This week: Despite last week’s fundamentals providing no real conclusion regarding the trade deal talks, investors should pay attention to any last-minute agreements that could be reached and stay alert to the possibility of a ‘no deal’ Brexit.

This Wednesday, the UK CPI and EU current account data will be released, while Friday will bring a host of global PMI figures for October.

Australia

Last week:The Australian Government predicted that their on ore price will decrease next year. China also banned imports of iron ore from Australia.7

This development casts a shadow on the Australian economic recovery, and the price of assets that do not generate cash flow increased. Additionally, the fundamentals indicate over-liquidity on the market and suggest that the Australian economic recovery could be slowing.

This week:This Tuesday’s Reserve Bank of Australia(RBA) meeting will be crucial to providing insight into what (if any) measures the central bank will be implementing to aid the recovery.

Currency pairs

·            USDX up to 93.69 (0.645%)

·            EUR/USD down to 1.17153 (-0.846%)

·            GBP/USD down to 1.29087 (-0.940%)

·            AUD/USD down to 0.70759 (-2.102%)

·            NZD/USD down to 0.6604 (-0.793%)

·            USD/CAD up to 1.31099 (1.394%)

·            USD/JPY down to 105.39 (-0.302%)

Today’s major asset analysis

EUR/USD and GBP/USD

The ongoing dispute over the UK’s potential post-Brexit trade deal seems to be nearing its end;despite Boris Johnson’s original 15^th October deadline having passed, talks are still occurring though progress remains slow.

Additionally, a reported second wave of the coronavirus across Europe is seeing renewed lock down and restriction measures enforced in several countries, and the fundamentals as a whole are not suggesting a strong economic recovery.

As for the technical analysis, both the pound and euro are both currently forming the right side of an‘N’ pattern. The EUR will meet its key support at 1.17 and an upwards resistance around 1.164.

Meanwhile, the GBP’s support is around 1.275 and the resistance looks to be near the 1.3 figure.The euro’s fundamentals are not optimistic but rising concern of a second wave of the virus in the US(as infection rates climb close to the number seen in July6) requires our attention this week.

[EUR/USD, daily chart] (Source: KVB PRIME)

[GBP/USD, daily chart] (Source: KVB PRIME)

AUD/USD

Australia’s fundamentals are worse than Europe’s at the moment, and both consumption and manufacturing are both currently lagging. As a major commodity exporter, its economy is also impacted due to low prices.

As a result of the COVID-19 pandemic, the realities of global trade have shifted and three pillars of the Australian economy – travel, oversea studying and exports of mined produce - are all down.There is even concern in some parts of the market that the RBA could lower interest rates further following its next meeting, which would require our attention.

Overall, the Aussie price is lacking support –though technically it is back to 61.8% of the trace back of its previous trend.

Its current support is around 0.7 and the upwards resistance is around 0.7415. If the price breaks through the first support intraday, the next support will be in the 0.68 region.

[AUD/USD, daily chart] (Source: KVB PRIME)

Gold

Gold is now facing pressure around 1900. The price has fallen to 61.8% of the previous trend from July. A higher proportion of liquidity is contributing towards the real economy and there is less liquidity on the capital financial markets without speculators’ funds.

In October, there were a good number of investors longing the EUR but many of these positions are no longer open.However, a second spread of COVID-19 in the US could act as a risk event, having the potential draw attention (and participation) back towards the market.

Technically, today’s support is around 1865 and the resistance is around 1925. Speculators should remain aware of the possibility of gold’s movements breaking out of the established triangle pattern in the near future.

[XAU/USD, daily chart] (Source: KVB PRIME)

USD Index

This week USDX will likely be impacted by both the US and European fundamental data. Last week, all major currencies except the Japanese yen fell against the USD.

As for technical analysis, the upwards resistance is around 94.3 with the lower support level at 93.2.

[USDX, daily chart] (Source: KVB PRIME)

Please note:All report charts for this week will include KDJ indicators and are not intended to provide trading advice of any kind.

References

1. CNBC (2020),OPEC again cuts 2021 oil demand forecast as virus cases rise, https://www.cnbc.com/2020/10/1...

2. EIA(2020),Overview of energy markets, https://www.eia.gov/outlooks/a...

3.API(2020),API's Weekly Statistical Bulletin, https://www.api.org/products-a...

4. Investing(2020),US API Weekly Crude Stock, https://au.investing.com/econo...

5. Reuters (2020),Scottish nationalists announce plans for new independence referendum, https://in.reuters.com/article...

6.The Guardian (2020), Number of US cases surpasses 8 million; France reports 25,086 new infections – as it happened, https://www.theguardian.com/wo...

7. SouthChinaMorning Post (2020),China’s ban on Australian coal could be ‘indefinite’ amid heightened political tensions, https://www.scmp.com/economy/c...